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Strategic Management April 14, 2009 Candace Weber Srinivas Rao Anne Lee Yugo Hirano
Monday, April 20, 2009
Agenda •
Activision Overview
•
External Analysis
•
Internal Analysis
•
Strategic Alternatives
•
Recommendations
•
Q&A
Monday, April 20, 2009
GAMING INDUSTRY OVERVIEW Demographic
Political
•
Male 14-38 (globally) • Growing female demographic
•
Socio-cultural
Global
•
Web 2.0 (video sharing, blogs, wikis,web communities) • Online Game tournaments • Interactive experiences have growing demand
•
Technological
Economic
7 Generations of gaming consoles • Developments in wireless telecommunications market • Anti-piracy technology
•
•
Rating standards for games with violence/sexual content • Federal laws(in progress)-requiring ID’s for game purchase
Online gaming • Piracy in China/India • Strict censorship laws in other countries • Currency exchange rates
Recession-surge in gaming • Video games provide more of an ROI than alternative forms of entertainment
Source: Datamonitor, Games Software in the United States
Monday, April 20, 2009
Porter’s 5 Forces Threat of New Entrants: LOW Substantial startup costs reduces the threat of new entrants into the gaming market
Bargaining power of suppliers: HIGH Need for computer programming talent,Intellectual property rights, and challenge to produce highly differentiated games
Bargaining power of buyers:
COMPETITIVE RIVALRY: HIGH High development costs and dependency on blockbuster titles creates a highly competitive environment Threat of substitutes: HIGH Music, movies, digital media, and all other leisure activities that serve as a form of entertainment are substitutes
Monday, April 20, 2009
Retailers: buying power is diminished by the need to provide titles from all publishers Consumers: Have access to multiple titles on multiple consoles, which results in limited brand loyalty, and low switching costs Console Manufacturers: They own one of the major distribution channels so they have high bargaining power
SWOT ANALYSIS STRENGTHS
WEAKNESSES
•
Guitar Hero Franchise • 2nd largest publisher in the industry • Strong distribution channel (all consoles, multiple retailers) • Exclusive relationships with movie studios
•
OPPORTUNITIES
THREATS
Console Development • International Expansion • Growing Female Market • Partnerships with Cable/Broadcasters
•
•
Monday, April 20, 2009
Brand awareness not high outside of target audience • Shelf life of games is short • Dependency on console industry
Console manufacturers also act as publishers (i.e. Microsoft, Nintendo) • Digital piracy
Organizational Goals •
Mission: Create great games that sell
•
Develop multiple games across multiple genres (not focused on developing epic games)
•
Focus on shareholder value •
•
Will forego features & functions for profitability
Develop breakthrough creative advertising to optimize media plans
Monday, April 20, 2009
Stakeholder Management Rene Pennison, Chairman Activision Blizzard
Bobby Kotic, CEO Activision
Qualifications
Qualifications
Graduated from l’École Supérieure de Chimie in Lyon with an engineering degree • held important board positions with Aventis, • Senior Executive Vice President of Human Resources Aventis. • Chairman Chief Executive Officer for Social Relations and Organization of Vivendi Universal
•
Results Achieved
Results Achieved
Under his guidance Vivendi Games has increased the revenues from 475 Million Euros in 2004 to 804 Million Euros in 20061.
•
•
•
Dropped out as Art History and Literature student at University of Chicago • CEO of 4Kids Entertainment • Led turnaround for Activision after purchasing it in 1981
Took bankrupt company in 1981 to revenues to the tune of $3 billion before the merger
Source: http://arstechnica.com/gaming/news/2008/11/activision-if-we-cant-run-a-game-into-the-ground-we-dont-want-it.ars
Monday, April 20, 2009
Activision Greenlight Process Pre-Production Concept Review purpose
Assessment
Post-Production Prototype
First Playable
• Is production progressing Is the game concept valid • Does the game’s design • Based on the and marketable? prove the concept’s development of the according to budget, validity, marketability and prototype, should the schedule, and quality technical feasibility game be approved for production
•
• First playable version of the Game Design Overview • working prototype • Game concept/treatment • First on screen overview • preliminary marketing game • Team Identification • Recommended • Final marketing plan plan and strategy • Budget and Schedule • Final: game design, • Package/Advertising marketing positioning • Updated Budget Product P&L production p&L , concept • Product P&L budget and schedule • Revised: production budget, product P&L
•
•
•
deliverables
Alpha
Harvard Business School Press: Kelly Slater Pro-Surfer Monday, April 20, 2009
Is the game being completed in a timely manner consistent with creative and technical goals?
Alpha version of the game • Trade marketing summary • Final packaging/Rough TV boards • Revised product P&L • Consumer play test results
Gaming Industry Value Chain FINANCE HUMAN RESOURCES PROCUREMENT
Supporting Activities Capital/Publishing Production/Talent
Distribution layer
Involved in paying for development of new titles and seeking returns through licensing of the titles.
Or the "publishing" The users/players of the industry, involved in games generating and marketing catalogs of games for retail and online distribution.
Includes developers, designers and artists, who may be working under individual contracts or as part of in-house development teams.
Activision’s Competitive Advantage
Primary Activities
Monday, April 20, 2009
End users
ACTIVISION SUCCESS
Tony Hawk's Pro Skater 2 was the best- selling video game in the U.S. for the PlayStation(R) game console during calendar year 2000, according to NPD's TRSTS Data. • The blockbuster action- sports game ranked #1 by both unit sales and revenue. • Tony Hawk's Pro Skater 2 rocketed to the top spot just five days after its initial launch • Ended the year as the #2 selling PlayStation game by unit sales for the week of December •
Guitar Hero(R) franchise set an industry record, surpassing $1 billion in North American retail sales in just 26 months, according The NPD Group •
Guitar Hero(R) III: Legends of Rock(TM) was the #1 title in units and dollars for calendar year 2007, making it the #1 best-selling video game of all time in a single calendar year •
Monday, April 20, 2009
Financial Analysis Net revenues 3,000,000
($ thousands)
2,250,000
1,500,000
750,000
0
2004
Monday, April 20, 2009
2005
2006
2007
2008
Financial Analysis Net income (loss) 400,000
($ Thousands)
300,000
200,000
100,000
0 2004
Monday, April 20, 2009
2005
2006
2007
2008
Financial Analysis Total shareholders equity (deficit) 2,500,000
($ thousands)
2,000,000 1,500,000 1,000,000 500,000 0 2004
Monday, April 20, 2009
2005
2006
2007
2008
Financial Analysis
Monday, April 20, 2009
Financial Analysis Avg P/E
Price/ Sales
Price/ Book
Net Profit Margin (%)
12/08
-126.3
2.7
0.97
-3.5
12/07
25.9
6.5
36.54
16.8
03/07
53.2
3.82
3.8
5.7
03/06
100.8
2.76
3.12
2.7
03/05
19.5
2.19
2.71
9.6
03/04
19.2
2.43
2.61
7.8
03/03
23.9
1.16
1.45
7.7
03/02
26.9
2.26
3.93
6.6
03/01
17.7
1.07
3.66
3.3
03/00
-10.3
0.52
2.37
-6
Book Value/ Share
Debt/ Equity
Return on Equity (%)
Return on Assets (%)
Interest Coverage
12/08
$8.87
0
-0.9
-0.7
-77.7
12/07
$0.41
0
94.6
25.8
03/07
$2.49
0
6.1
4.8
754.1
03/06
$2.21
0
3.3
2.8
58.1
03/05
$2.05
0
12.3
10.3
648.4
03/04
$1.71
0
8.9
7.6
300.4
03/03
$1.24
0
11.1
9.4
101.7
03/02
$0.95
0.01
12.1
9.4
67.8
03/01
$0.55
0.41
11.3
5.7
4.2
Monday, 03/00 April 20, 2009
$0.42
0.68
-25.8
-11
-3.2
NA
Financial Analysis 1. Short-term solvency, or liquidity, ratios
Company
Industry
4. Profitability ratios
S&P 500
Current Ratio
2.4
2.2
1.4
Quick Ratio
2.3
2.1
1.1
Cash ratio
0.5
2. Long-term solvency, or financial leverage, ratios
Company
Total debt ratio
0.22
Debt/Equity Ratio
0.00
Equity multiplier
1.28
Interest Coverage
-5.1
Cash coverage ratio
-7.2
Industry
Industry
S&P 500
Gross Margin
39.2
44.2
39.7
Return On Assets
-1.4
-5.2
8.2
Return On Equity
-1.8
-8.3
28
S&P 500
0.06
Company
1.02
-5.2
30
5. Market value ratios
3. Asset utilization, or turnover, ratios
Company
Industry
S&P 500
Inventory Turnover
13.6
12.9
12.2
Days' sales in inventory
26.8
28.3
29.9
Receivable Turnover
4.6
5.7
15.8
Days' sales in receivables
79.3
64.0
23.1
Asset Turnover
1.16
0.6
1
Capital intensity
0.873
Monday, April 20, 2009
P/E Ratio (TTM)
Price/Book Value
Company
Industry
S&P 500
-126.3
4.25
13.52
0.97
1.49
2.97
Key Strategic Issues 1. Activision needs to leverage the media mix to best optimize the marketing plan for a game to reach the greatest revenue 2. Activision lags in the global market, while EA Sports is number one in international sales
Monday, April 20, 2009
Strategic Alternatives 1. Related Diversification: Media Mix (leverage resources across multiple game genres) 2.Related Diversification: Vertical Integration(Console Manufacturing) 3.Broad Differentiation
Monday, April 20, 2009
STRATEGIC RECOMMENDATION 1. Related Diversification: Media Mix (leverage resources across multiple game genres) •
Tactical level: •
Effectively utilize online marketing
•
Partner with other developers of entertainment products in the same genre as a particular video game
•
Leverage its own games as a medium for in-game advertising
Monday, April 20, 2009
Formulation and Implementation •
•
Develop Strategic alliances
•
Alliances with broadband providers, wireless providers, and anti-piracy lobbies
•
Strengthen existing alliances with studios to cross promote games in movies, dvd's, etc. to optimize media mix
Budget
• •
Team Development
• •
Allocate budgets for developing strategic partnerships
Develop cross-functional teams globally and domestically
Timeline
•
Define necessary stages to test-market the strategy
Monday, April 20, 2009
BALANCED SCORECARD Business Perspective Goals: Design internal project team
Measures: employee retention
Operational Perspective Goals: roll out out the the roll diversification diversification strategy through through strategy test markets markets test
Monday, April 20, 2009
Measures: ROI ROI
Customer Perspective Goals: conduct a consumer survey within Big Box retailers.
Measures: effectiveness and impact of its ads on point of purchase
Innovation and Learning Perspective Goals: Train project team Continually train continually project team
Measures: time to market improvements in rollouts
QUESTIONS?
Monday, April 20, 2009
Monday, April 20, 2009
Agenda •
Activision Overview
•
External Analysis
•
Internal Analysis
•
Strategic Alternatives
•
Recommendations
•
Q&A
Monday, April 20, 2009
GAMING INDUSTRY OVERVIEW Demographic
Political
•
Male 14-38 (globally) • Growing female demographic
•
Socio-cultural
Global
•
Web 2.0 (video sharing, blogs, wikis,web communities) • Online Game tournaments • Interactive experiences have growing demand
•
Technological
Economic
7 Generations of gaming consoles • Developments in wireless telecommunications market • Anti-piracy technology
•
•
Rating standards for games with violence/sexual content • Federal laws(in progress)-requiring ID’s for game purchase
Online gaming • Piracy in China/India • Strict censorship laws in other countries • Currency exchange rates
Recession-surge in gaming • Video games provide more of an ROI than alternative forms of entertainment
Source: Datamonitor, Games Software in the United States
Monday, April 20, 2009
Porter’s 5 Forces Threat of New Entrants: LOW Substantial startup costs reduces the threat of new entrants into the gaming market
Bargaining power of suppliers: HIGH Need for computer programming talent,Intellectual property rights, and challenge to produce highly differentiated games
Bargaining power of buyers:
COMPETITIVE RIVALRY: HIGH High development costs and dependency on blockbuster titles creates a highly competitive environment Threat of substitutes: HIGH Music, movies, digital media, and all other leisure activities that serve as a form of entertainment are substitutes
Monday, April 20, 2009
Retailers: buying power is diminished by the need to provide titles from all publishers Consumers: Have access to multiple titles on multiple consoles, which results in limited brand loyalty, and low switching costs Console Manufacturers: They own one of the major distribution channels so they have high bargaining power
SWOT ANALYSIS STRENGTHS
WEAKNESSES
•
Guitar Hero Franchise • 2nd largest publisher in the industry • Strong distribution channel (all consoles, multiple retailers) • Exclusive relationships with movie studios
•
OPPORTUNITIES
THREATS
Console Development • International Expansion • Growing Female Market • Partnerships with Cable/Broadcasters
•
•
Monday, April 20, 2009
Brand awareness not high outside of target audience • Shelf life of games is short • Dependency on console industry
Console manufacturers also act as publishers (i.e. Microsoft, Nintendo) • Digital piracy
Organizational Goals •
Mission: Create great games that sell
•
Develop multiple games across multiple genres (not focused on developing epic games)
•
Focus on shareholder value •
•
Will forego features & functions for profitability
Develop breakthrough creative advertising to optimize media plans
Monday, April 20, 2009
Stakeholder Management Rene Pennison, Chairman Activision Blizzard
Bobby Kotic, CEO Activision
Qualifications
Qualifications
Graduated from l’École Supérieure de Chimie in Lyon with an engineering degree • held important board positions with Aventis, • Senior Executive Vice President of Human Resources Aventis. • Chairman Chief Executive Officer for Social Relations and Organization of Vivendi Universal
•
Results Achieved
Results Achieved
Under his guidance Vivendi Games has increased the revenues from 475 Million Euros in 2004 to 804 Million Euros in 20061.
•
•
•
Dropped out as Art History and Literature student at University of Chicago • CEO of 4Kids Entertainment • Led turnaround for Activision after purchasing it in 1981
Took bankrupt company in 1981 to revenues to the tune of $3 billion before the merger
Source: http://arstechnica.com/gaming/news/2008/11/activision-if-we-cant-run-a-game-into-the-ground-we-dont-want-it.ars
Monday, April 20, 2009
Activision Greenlight Process Pre-Production Concept Review purpose
Assessment
Post-Production Prototype
First Playable
• Is production progressing Is the game concept valid • Does the game’s design • Based on the and marketable? prove the concept’s development of the according to budget, validity, marketability and prototype, should the schedule, and quality technical feasibility game be approved for production
•
• First playable version of the Game Design Overview • working prototype • Game concept/treatment • First on screen overview • preliminary marketing game • Team Identification • Recommended • Final marketing plan plan and strategy • Budget and Schedule • Final: game design, • Package/Advertising marketing positioning • Updated Budget Product P&L production p&L , concept • Product P&L budget and schedule • Revised: production budget, product P&L
•
•
•
deliverables
Alpha
Harvard Business School Press: Kelly Slater Pro-Surfer Monday, April 20, 2009
Is the game being completed in a timely manner consistent with creative and technical goals?
Alpha version of the game • Trade marketing summary • Final packaging/Rough TV boards • Revised product P&L • Consumer play test results
Gaming Industry Value Chain FINANCE HUMAN RESOURCES PROCUREMENT
Supporting Activities Capital/Publishing Production/Talent
Distribution layer
Involved in paying for development of new titles and seeking returns through licensing of the titles.
Or the "publishing" The users/players of the industry, involved in games generating and marketing catalogs of games for retail and online distribution.
Includes developers, designers and artists, who may be working under individual contracts or as part of in-house development teams.
Activision’s Competitive Advantage
Primary Activities
Monday, April 20, 2009
End users
ACTIVISION SUCCESS
Tony Hawk's Pro Skater 2 was the best- selling video game in the U.S. for the PlayStation(R) game console during calendar year 2000, according to NPD's TRSTS Data. • The blockbuster action- sports game ranked #1 by both unit sales and revenue. • Tony Hawk's Pro Skater 2 rocketed to the top spot just five days after its initial launch • Ended the year as the #2 selling PlayStation game by unit sales for the week of December •
Guitar Hero(R) franchise set an industry record, surpassing $1 billion in North American retail sales in just 26 months, according The NPD Group •
Guitar Hero(R) III: Legends of Rock(TM) was the #1 title in units and dollars for calendar year 2007, making it the #1 best-selling video game of all time in a single calendar year •
Monday, April 20, 2009
Financial Analysis Net revenues 3,000,000
($ thousands)
2,250,000
1,500,000
750,000
0
2004
Monday, April 20, 2009
2005
2006
2007
2008
Financial Analysis Net income (loss) 400,000
($ Thousands)
300,000
200,000
100,000
0 2004
Monday, April 20, 2009
2005
2006
2007
2008
Financial Analysis Total shareholders equity (deficit) 2,500,000
($ thousands)
2,000,000 1,500,000 1,000,000 500,000 0 2004
Monday, April 20, 2009
2005
2006
2007
2008
Financial Analysis
Monday, April 20, 2009
Financial Analysis Avg P/E
Price/ Sales
Price/ Book
Net Profit Margin (%)
12/08
-126.3
2.7
0.97
-3.5
12/07
25.9
6.5
36.54
16.8
03/07
53.2
3.82
3.8
5.7
03/06
100.8
2.76
3.12
2.7
03/05
19.5
2.19
2.71
9.6
03/04
19.2
2.43
2.61
7.8
03/03
23.9
1.16
1.45
7.7
03/02
26.9
2.26
3.93
6.6
03/01
17.7
1.07
3.66
3.3
03/00
-10.3
0.52
2.37
-6
Book Value/ Share
Debt/ Equity
Return on Equity (%)
Return on Assets (%)
Interest Coverage
12/08
$8.87
0
-0.9
-0.7
-77.7
12/07
$0.41
0
94.6
25.8
03/07
$2.49
0
6.1
4.8
754.1
03/06
$2.21
0
3.3
2.8
58.1
03/05
$2.05
0
12.3
10.3
648.4
03/04
$1.71
0
8.9
7.6
300.4
03/03
$1.24
0
11.1
9.4
101.7
03/02
$0.95
0.01
12.1
9.4
67.8
03/01
$0.55
0.41
11.3
5.7
4.2
Monday, 03/00 April 20, 2009
$0.42
0.68
-25.8
-11
-3.2
NA
Financial Analysis 1. Short-term solvency, or liquidity, ratios
Company
Industry
4. Profitability ratios
S&P 500
Current Ratio
2.4
2.2
1.4
Quick Ratio
2.3
2.1
1.1
Cash ratio
0.5
2. Long-term solvency, or financial leverage, ratios
Company
Total debt ratio
0.22
Debt/Equity Ratio
0.00
Equity multiplier
1.28
Interest Coverage
-5.1
Cash coverage ratio
-7.2
Industry
Industry
S&P 500
Gross Margin
39.2
44.2
39.7
Return On Assets
-1.4
-5.2
8.2
Return On Equity
-1.8
-8.3
28
S&P 500
0.06
Company
1.02
-5.2
30
5. Market value ratios
3. Asset utilization, or turnover, ratios
Company
Industry
S&P 500
Inventory Turnover
13.6
12.9
12.2
Days' sales in inventory
26.8
28.3
29.9
Receivable Turnover
4.6
5.7
15.8
Days' sales in receivables
79.3
64.0
23.1
Asset Turnover
1.16
0.6
1
Capital intensity
0.873
Monday, April 20, 2009
P/E Ratio (TTM)
Price/Book Value
Company
Industry
S&P 500
-126.3
4.25
13.52
0.97
1.49
2.97
Key Strategic Issues 1. Activision needs to leverage the media mix to best optimize the marketing plan for a game to reach the greatest revenue 2. Activision lags in the global market, while EA Sports is number one in international sales
Monday, April 20, 2009
Strategic Alternatives 1. Related Diversification: Media Mix (leverage resources across multiple game genres) 2.Related Diversification: Vertical Integration(Console Manufacturing) 3.Broad Differentiation
Monday, April 20, 2009
STRATEGIC RECOMMENDATION 1. Related Diversification: Media Mix (leverage resources across multiple game genres) •
Tactical level: •
Effectively utilize online marketing
•
Partner with other developers of entertainment products in the same genre as a particular video game
•
Leverage its own games as a medium for in-game advertising
Monday, April 20, 2009
Formulation and Implementation •
•
Develop Strategic alliances
•
Alliances with broadband providers, wireless providers, and anti-piracy lobbies
•
Strengthen existing alliances with studios to cross promote games in movies, dvd's, etc. to optimize media mix
Budget
• •
Team Development
• •
Allocate budgets for developing strategic partnerships
Develop cross-functional teams globally and domestically
Timeline
•
Define necessary stages to test-market the strategy
Monday, April 20, 2009
BALANCED SCORECARD Business Perspective Goals: Design internal project team
Measures: employee retention
Operational Perspective Goals: roll out out the the roll diversification diversification strategy through through strategy test markets markets test
Monday, April 20, 2009
Measures: ROI ROI
Customer Perspective Goals: conduct a consumer survey within Big Box retailers.
Measures: effectiveness and impact of its ads on point of purchase
Innovation and Learning Perspective Goals: Train project team Continually train continually project team
Measures: time to market improvements in rollouts
QUESTIONS?
Monday, April 20, 2009
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